UK-Switzerland Trade Relationship: A Modernized Agreement for Services Superpowers

The United Kingdom and Switzerland share a unique and significant trading relationship, with trade worth nearly ￡53 billion. While both nations stand out as leading service economies, their current Free Trade Agreement (FTA) is based on an EU-Swiss deal from over 50 years ago, a time before the home computer or the internet. This outdated agreement presents both challenges and opportunities for updating the trading relationship to reflect today’s service-focused economy.

Current Trade Dynamics

Switzerland, one of the wealthiest countries in the world, is the 10th largest trading partner for the UK. The two nations share an economy centered around services, exporting nearly ￡15 billion in services annually. These include financial, professional, legal, and architectural services. Despite the differences in regulatory environments, both sides are eager to modernize their trading relationship to address these gaps and ensure smoother and more efficient trade.

The Urgency for Modernization

The existing FTA does not cover services, investment, digital, or data sectors. However, almost 69% of the UK’s services exports to Switzerland are delivered electronically. To address this discrepancy and capitalize on the growing digital economy, the UK and Switzerland have initiated discussions to update the FTA. This effort aims to create a modern agreement that aligns with the needs of the 21st century economy.

Recent Initiatives and Future Prospects

On May 15, Trade Secretary Kemi Badenoch traveled to Switzerland to launch negotiations for a new UK-Switzerland FTA. She emphasized the potential benefits of updating the trading relationship between the two leading service economies. This new agreement is expected to:

Reduce tariffs on UK exports to Switzerland, saving UK businesses around ￡7.4 million annually in duties. Create simpler trade rules for UK firms, including products of origin, customs procedures, and digitization. Enhance investment in emerging technologies, data innovation, and digital trade. Better align regulatory frameworks to facilitate easier market access.

The Business and Trade Secretary will engage with Federal Councillor Guy Parmelin in Bern, the capital of Switzerland, to kick off these talks. The visit will also include a tour of SIX, the operator of the Swiss Exchange and a key player in the financial sector. Secretary Badenoch will attend the innovation accelerator Tenity to learn about startups already operational in the UK, providing a platform for knowledge sharing and collaboration.

Benefits for Both Sides

The new FTA is expected to bring significant benefits to both the UK and Switzerland. For the UK, modernizing the trading relationship will remove market access barriers, improve regulatory cooperation, and enable UK firms to compete on an equal footing in Switzerland. For Switzerland, the new agreement will foster cooperation in the financial sector, promote trade, and support the country’s ambitions for sustainable growth.

Investment and Economic Growth

Investment between the UK and Switzerland is substantial. Swiss foreign direct investment in sectors such as textiles, chemicals, manufacturing, and financial services reached ￡74 billion in 2021. Conversely, UK investment into Switzerland was worth ￡52 billion. A new FTA would further stimulate this investment, aiding Swiss companies seeking to invest in communities across the UK and offering preferential terms for UK investors in Switzerland.

Furthermore, Switzerland's demand for imports is expected to grow by 78% by 2050, providing a robust market for UK exports. This growth presents a valuable opportunity for UK businesses, especially in the service sector, to expand their footprint in Switzerland and other parts of Europe.

It is important to note that if the UK had still been in the EU, it would have been powerless to negotiate trade agreements with Switzerland due to the EU’s prohibition on its member states engaging in such negotiations independently. This underscores the advantages of the UK’s current stance as a trading nation outside the EU, free to pursue its own trade agreements.

In conclusion, the launch of the new UK-Switzerland FTA marks a significant step towards modernizing the trading relationship between two of the world’s leading service economies. The agreement aims to facilitate smoother and more efficient trade, enhance regulatory cooperation, and boost investment in digital and emerging technologies. This modernization is not only beneficial for the UK and Switzerland but also contributes to the broader digital and service-driven economy.